Health Insurance Consumer Information

In this issue, we focus on the variety of state approaches to regulating individual health insurance. The individual insurance market remains a timely topic of interest because many proposals to help the uninsured would rely on this type of coverage. However, the ability to obtain individual health insurance in the U.S. depends very much on where one lives. In most states, only people in perfect health can be confident of their ability to buy individual coverage because insurers can (and do) turn down applicants with health problems, charge them more, or limit coverage for their health condition. In some states, laws limit the ability of some or all insurers from discriminating against some or all residents, some or all of the time. In a few states, discrimination based on health status is never allowed in the individual insurance market.In this issue of News You Can Use, two documents are offered for your information. The first document is a column about the New Jersey individual health insurance market written by Wardell Sanders, Executive Director of the New Jersey Individual Health Coverage Program Board. This column was originally submitted as a letter to the editor of Health Care News, a publication of the Heartland Institute, which featured a critical and misleading article about the New Jersey individual insurance market in February 2004; however, the publication declined to print this response, citing a lack of space. Accordingly, News You Can Use is pleased to make Mr. Sanders’ column available to our subscribers.

In his column, Mr. Sanders points out standard HMO coverage in New Jersey, available for $383.67 per month, “doesn’t have the usual list of exclusions found in many individual market plans and high-risk pool plans. It is a comprehensive plan that covers maternity, mental health, prescription drugs, and does not have a lifetime limit. It is available to anyone, regardless of health status, but does have a 12-month pre-existing condition exclusion. Query: How does that option stack up against other states, especially where the applicant has a health condition or is older?�

For those interested in pursuing this query, we offer our second document – a chart summarizing key state rules limiting discrimination based on health status by individual health insurance companies. Many visitors to our web site are interested in comparing the laws in their own state to those in others. This chart was created to enable such state-by-state comparisons, and was supported by grants from the Commonwealth Fund and the New York Community Trust.

We hope you find these two documents interesting and informative.

Setting the Record Straight on
New Jersey’s Individual Health Insurance Market

by
Wardell Sanders
Executive Director
NJ Individual Health Coverage Program Board

April, 2004

[Note to Readers: This column was written in response to an article that appeared in February, 2004 in Health Care News, a publication of the Heartland Institute (an organization based in Illinois.) The publication’s managing editor, Conrad Meier, wrote a highly critical and misleading case study of New Jersey’s individual market regulation, but then, citing lack of space for several upcoming issues, declined to print a response by Wardell Sanders of the New Jersey Department of Banking and Insurance. In the interest of setting the record straight, healthinsuranceinfo.net is pleased to post Mr. Sanders’ response in its entirety.]

The message of the article by Conrad Meier, entitled, “The New Jersey Car Wreck,� in the February 2004 Health Care News, faithfully supports the stated mission of the Heartland Institute, to promote “free market� solutions to healthcare. This article is presented as a “case study,� but in truth it is a polemic, and one in which some statements are incorrect and some important facts are omitted. Despite the dour portrait painted by the author, New Jersey’s individual market has had some success.

Like many critics of guaranteed issuance and community rating, the article’s author selected as his primary source of rate comparison the most expensive plan option available in New Jersey’s individual market: Plan D with a $500 deductible. This led the author to the conclusion that New Jersey’s rates are one of the highest in the nation. But are they? What if the point of comparison had been the standard HMO $30 copay plan which is available for $383.67 per month for single coverage. This plan doesn’t have the usual list of exclusions found in many individual market plans and high-risk pool plans. It is a comprehensive plan that covers maternity, mental health, prescription drugs, and does not have a lifetime limit. It is available to anyone, regardless of health status, but does have a 12-month pre-existing condition exclusion. Query: How does that option stack up against other states, especially where the applicant has a health condition or is older?

The article identifies a “controversy� concerning the number of people who buy coverage in New Jersey’s individual market, and cites differences in data published by the Census Bureau, Employee Benefits Research Institute, and the State. This is not a controversy; these sources are just measuring different things. Just to be clear, the State’s published enrollment for the IHC Program is not intended to show total enrollment of all residents with individual coverage, just coverage through the IHC Program.

Declining enrollment in the IHC Program has been affected by the disbanding of the Health Access Program, which provided state funds to purchase IHC coverage for 23,000 covered persons. It is also affected by the increasing number of coverage options for many individuals outside the IHC Program that have become available (e.g., NJ FamilyCare, NJ KidCare, the State Health Benefits Plan for certain part-time employees, self-funded MEWAs).

Also, New Jersey’s small group market has very relaxed rules for eligibility, and many individual purchasers with businesses have moved to the small group market. Eligibility for the individual market requires a lack of access to group coverage. Lower than average enrollment in New Jersey’s individual market may not resemble a car wreck; it may be emblematic of the fact that people are effectively steered to less expensive group coverage. According to Census data, New Jersey has a greater percentage of its residents covered under group plans (72.1%) than the national average (65%).

The national wave of individual and small employer market regulatory reforms in the 1990s was largely in response to the failure of the free market to provide viable options to the people arguably most in need of health insurance coverage: the sick, the disabled, and older persons not eligible for Medicare. In 1992, New Jersey’s largely unregulated individual market was in crisis. Carriers had increasingly developed methods for turning away business from people with any kind of health condition; the carrier of last resort was going bankrupt; and the trajectory of the market portended a collapse. The 1992 reforms helped avert the collapse of the marketplace and created some short-term stability to the market. Long-term success and viability have proven to be more difficult.

New Jersey stakeholders and policymakers have been continuing a dialogue on the proper balance of regulatory measures and market-based incentives to make the market work as well as possible. But this dialogue deserves to have an accurate and complete set of facts. The article “The New Jersey Car Wreck,� needs a crash course on full disclosure.

A number of protections have been enacted to protect people losing their job-based health insurance. These protections, as well as other options, applied to Clara’s case as follows:

COBRA – People in group health plans sponsored by employers with 20 or more workers have the right to continue coverage under that health plan temporarily when it would otherwise end. Many states, including Tennessee, have adopted state continuation laws offering similar rights to people losing coverage under smaller group health plans. However, when an employer discontinues a health plan, there is no plan to continue under. Therefore, COBRA and state continuation laws offered no help to Clara.

Conversion policies – The coverage Clara’s employer purchased on her behalf contained a provision guaranteeing Clara and others the right to convert group coverage to a non-group policy. This means Clara had the right to purchase a non-group policy from the health insurance company that used to cover her employer-sponsored plan. The conversion policy offered comprehensive coverage, including prescription drugs, though the cost was high – over $800 per month. This was more than Clara (who earns only about $2,000 per month) could afford.

HIPAA – People leaving group health coverage also have rights under a federal law called HIPAA. Under HIPAA, health insurance companies in the individual market must agree to sell coverage to HIPAA-eligible individuals (people who have lost group coverage, who have at least 18 months of prior coverage, and who meet other requirements.)¹ However, HIPAA sets no limits on what private insurers can charge for this coverage and, as a result, it tends to be very expensive. Indeed, Clara contacted several insurance companies, all of which offered her coverage for a premium of about $1,000 per month. One company did offer a cheaper policy (only $300 per month) but that policy didn’t cover prescription drugs, an essential benefit for Clara.

Shop around for cheaper coverage – Many people who lose job-based health benefits try to shop around for affordable individual policies. In fact, many policies for sale in the individual health insurance market today are substantially cheaper than $1,000 per month. However, Clara is unlikely to qualify for them. The cheaper coverage is only available to people who can pass “medical underwriting,� a process insurance companies use to determine an applicant’s likely risk and expense. In Tennessee, as in most states, Clara will be turned down for medically underwritten health insurance because she has MS. In fact, the only time individual health insurers in Tennessee are prohibited from turning down Clara is during the 63-day period that she is HIPAA eligible.

High-risk pools – The state of Tennessee used to operate a high-risk pool – a government program to provide health insurance for people, like Clara, whom private insurers would prefer to deny. Several years ago, however, Tennessee merged its high-risk pool program into its Medicaid program, TennCare. For a while, TennCare offered coverage to all uninsurable residents in the state. Then, it limited eligibility to uninsurable residents below the federal poverty level. (Clara’s modest income of $2,000/month is well above the federal poverty level.) Currently, because of the state’s tight budget, TennCare is accepting no new enrollment by uninsurable residents.

Get another job – Another more drastic option facing Clara would be to try to find a new job that offers health benefits. She considered this option, though it seemed unlikely. For one thing, as Clara wrote, “I have worked for this same company (a small family owned business) for 20 years and have stayed because I love what I do and I trusted the people I work for.� Further, Clara worried that her age and narrow work experience would be a disadvantage in today’s job market. If she did try to switch jobs, she would need to hurry. To avoid incurring a pre-existing condition exclusion period under a new group health plan, Clara would have to enroll within 63 days of losing her prior coverage. If it takes longer than 63 days, a new group health plan could require Clara to pay out of pocket for her MS drugs for one year.
Move – An even more drastic option would be to move to another state where non-group health insurance is more readily available to people like Clara. In New York and New Jersey, for example, health insurers cannot turn people down or charge them more based on a health condition like MS. Clara would be able to buy health insurance with prescription drug coverage for $400-$450 per month, depending on the insurer. However, she would need to relocate quickly – within the next 63 days. After that, the individual insurers in these states would also be allowed to impose a pre-existing condition exclusion period. A move so far in so short a time period seemed impractical to Clara.

Lessons for Policymakers

Clara is typical of many millions of Americans who end up uninsured. She has been fortunate enough to have a good job with benefits for many years, but now that economic times are tighter, her job-based health insurance has come to an end. No federal or state law guarantees Clara will have access to coverage that is both adequate and affordable. The safety nets that have been enacted to help people like Clara – COBRA and HIPAA – have too many gaps to offer her meaningful protection and leave her facing difficult choices.

At Christmas, just as her period of HIPAA eligibility was coming to an end, Clara’s daughter gave her enough money to cover three-months of health insurance under a HIPAA policy. Clara accepted this gift with some misgivings. She doesn’t like being a financial burden on her daughter and worries about how she’ll afford coverage after three months. She writes,

“Now I am in the position of having to decide to carry individual health coverage, stop taking the medication that has kept my disease in check, or stop paying rent and groceries to pay insurance… [I] make more than minimum wage. However, there is not money left over at the end of the month now…and in the future there will be lots of month left over after the money runs out. Stress over the impending insurance-less future has already caused my illness to begin to worsen. I am so afraid that when I am unable to afford the medication I am now taking, it will exacerbate further and I will become disabled in a short time.�

Clara, who is 53, lives in Tennessee and has Multiple Sclerosis – a disabling, degenerative condition whose progress can sometimes be slowed with medications. Clara’s MS drugs cost over $1,000 per month, but because of them, she can still work and walk. Clara works for a small company that, until recently, offered health benefits. However, the cost of coverage had grown so high that Clara’s employer decided to discontinue the health plan as of November 2002.

Federal and state law guaranteed Clara access to some coverage options following loss of her job-based insurance. However, all these options were seriously flawed and Clara had only 63 days to decide between them. Once she made her decision, she found the process of applying for coverage can, itself, be complex and time consuming.

Other consumers applying for HIPAA coverage can learn the following lessons from Clara’s experience:

The HIPAA Election Period is Time-Limited

HIPAA guarantees eligible persons access to an individual health insurance policy with no preexisting exclusion period.² However, this protection only lasts for 63 days. According to federal regulations, HIPAA-eligible people must make a substantially completed application for their HIPAA coverage no later than the 63rd day following the loss of group health plan coverage. (Even if coverage takes effect after the 63rd day, the clock stops with a substantially complete application.) Because the application date is time sensitive, those electing a HIPAA policy are encouraged to send applications using certified mail, so as to verify the date of application.³

Clara applied for coverage on the 61st day of HIPAA eligibility. According to Tennessee insurance regulators, handing her application to a licensed health insurance broker was the same thing as handing her application directly to the insurance company. Therefore, based on this information, Clara’s application should not have been declined.

Proof of HIPAA Eligibility Is Important

People are HIPAA eligible when they have left group health insurance, have at least 18 months of prior creditable coverage, and meet other requirements. Usually, people prove their coverage history with “certificates of creditable coverage.� All health insurers and group health plans must issue certificates to people when their coverage ends. The certificate must document the time you (and your dependents) were enrolled in coverage. In Clara’s case, her employer had provided coverage under various health plans over the years. Each time the employer changed carriers, Clara was issued a certificate and, fortunately, she saved all of them.

Insurers are not allowed to refuse to consider an application for HIPAA coverage solely because the applicant has not yet provided certificates. Federal regulations say it is the responsibility of the insurer to determine if a person is HIPAA eligible. Furthermore, for people who have lost their certificates or can’t obtain new ones, insurers must accept other proof of prior coverage (such as old health plan ID cards, or pay stubs indicating withholding for health insurance.)

The insurance company should not have refused to accept Clara’s application because it was not accompanied by certificates. Insurers Are Not Supposed to Delay the Application Process
Federal rules also state that an insurer receiving an application for HIPAA coverage must promptly determine the consumer’s eligibility based on the application. If the insurer doesn’t have enough information, it must request additional information and do so promptly. An insurer’s delay in processing an application, even in the case of collecting further information from the applicant, cannot be used as a basis for denying an application.

Notice and Consumer Assistance Would Help

Clara did not know the ins and outs of HIPAA when she first lost her health insurance. She received no notice of her HIPAA rights when her group coverage ended, only a certificate of creditable coverage. These documents provide important proof of prior coverage, but no explanation of why such proof is important to consumers or why it is important to act within 63 days to obtain new coverage.

Once Clara decided on HIPAA coverage, she had no independent help in navigating the process of obtaining coverage. She had to rely on her broker and an insurance company to handle her application correctly and promptly, her eligibility for HIPAA coverage was disputed, and she is now trying to resolve this dispute. Some states have enacted consumer ombudsman programs to help people like Clara navigate the health care system and resolve problems like this one. Unfortunately, in Tennessee (and many other states) there is no such program for uninsured and privately insured residents. Clara will have to turn to her state regulator or consider legal assistance if she can’t resolve the situation herself in the very near future.

Lessons for Policy Makers

HIPAA guarantees access to non-group coverage after job-based health coverage ends. For people with health problems like Clara’s, it is often the only option available to stay insured. However, understanding HIPAA rights and rules can be challenging for consumers. The 63-day time limit on HIPAA protections adds to this burden. Finally, the lack of ombudsman programs means most people are left on their own to understand the rules and secure coverage, and some will flounder. Even for people like Clara, who manage to find resources to pay for HIPAA coverage, the health care system’s sheer complexity can create yet another crack to fall through.

This issue brief was prepared by Kevin Lucia and Karen Pollitz.

¹In about half the states, the high-risk pool offers coverage to HIPAA-eligible individuals.

²In about half the states, the high-risk pool offers coverage to HIPAA-eligible individuals.

³Planning ahead for this brief period of HIPAA eligibility is advisable whenever possible. People who anticipate losing COBRA (or state continuation coverage) and expect to be HIPAA eligible do not need to wait for COBRA (or state continuation coverage) to be exhausted before applying for a HIPAA policy. Insurers have an obligation to accept applications in advance of the exhaustion date so that coverage can be seamless.

Facts: Martha and Bill live in Massachusetts. Bill, who is 70, will sign up for Medicare when he retires this summer. Meanwhile, he and his wife have both been insured by his employer’s group health plan for the past 25 years. Martha is only 58 and will not be eligible for Medicare for another seven years.

Martha would prefer to retain Bill’s employer’s health plan for as long as possible and plans to elect COBRA coverage, which will allow her to continue with the employer’s health plan for a while after Bill retires. Because Bill will be going on Medicare when he retires, she expects that she will have the maximum 36 months of COBRA coverage. The health plan, however, tells her that she will only be able to get 18 months of coverage.

In this case, the health plan is wrong. Martha is entitled to 36 months of COBRA coverage when Bill retires. The rules for COBRA can sometimes be complicated, but it is important for consumers and health plans to understand them. This is especially true for older consumers who can have trouble staying insured when they lose access to group health coverage, especially if they have health problems.

COBRA Continuation Coverage

The Consolidated Omnibus Budget Reconciliation Act of 1986, better known as COBRA, allows former employees and their dependents (spouse and dependent children) to continue with their employer’s coverage for a certain period of time after it would otherwise end. This federal law applies to private employers with 20 or more employees. Many states have similar continuation laws as well for employers with fewer than 20 employees. How long a former employee or his dependents can have COBRA coverage depends on the “qualifying event,� or reason why coverage was lost:

• If the covered employee lost coverage because he reduced the number of hours he was working, was laid-off, left for another job, or retired then COBRA coverage lasts for 18 months.
• If an employee or a dependent becomes disabled within 2 months of the qualifying event, his COBRA coverage might be extended to 29 months.
• If the former employee died, divorced his spouse, or became entitled to Medicare, then the employee’s dependents are eligible for 36 months of coverage.

Sometimes, a person can have more than one qualifying event that extends the period of time that COBRA lasts. In any event, COBRA coverage is not available for longer than 36 months.

While the insurance Martha will receive under COBRA will be the same as she had before her husband retired, Bill’s employer will no longer be responsible for the cost of her coverage. Martha will have to pay up to 102% of the premium (150% if she elects the disability extension.)

Medicare as a Qualifying Event: When a covered employee becomes entitled to (i.e., signed up for and actually covered by) Medicare and retires, his dependents become eligible for COBRA coverage for 36 months from that date of entitlement. However, if the covered employee signs up for Medicare but continues to work, the rules are somewhat different. (In fact, it’s possible that the health plan was confused by these special rules when they gave Martha bad advice. If a covered employee leaves his job within 18 months after becoming entitled to Medicare, then COBRA coverage for his dependents will be the longer of 18 months from the date he left his job or reduced his hours or 36 months from the date of Medicare entitlement. If he retires more than 18 months after he becomes entitled to Medicare, however, his dependents will only be eligible for 18 months of COBRA coverage.

In our case, Bill is retiring after he first became eligible for Medicare (at age 65), but he is waiting to age 70 to be covered under (or entitled to) Medicare and retire. Therefore, when Bill retires and signs up for Medicare on August 1, 2002, Martha can elect to receive a full 36 months of COBRA coverage.

Other Coverage Options

COBRA offers Martha some protections, if she can afford it. It extends the amount of time she can continue to be covered under an employer-based health plan but only takes her so far. Because Martha has 7 years before becoming eligible for Medicare herself, she will have to be prepared to explore other health insurance coverage options as well. Her COBRA coverage will expire in 3 years. What other options could she have to fill in the 4-year gap?

Individual health insurance coverage: After exhausting COBRA, a federal law called the Health Insurance Portability and Accountability Act of 1996 (HIPAA) requires that Martha be guaranteed access to individual health insurance coverage because she is leaving a group health plan and has been continuously covered for at least 18 months. HIPAA doesn’t say what Martha can be charged for this guaranteed coverage, though some states do limit premiums. In Massachusetts, where Martha lives, insurers cannot charge people more because of their health problems, although premiums can be increased for age. Martha received a quote of $600 per month for individual health insurance coverage for someone her age in Massachusetts. In other states that do not limit what HIPAA-eligible individuals can be charged, policies may cost even more.

All residents of Massachusetts (not just HIPAA-eligible individuals) are guaranteed access to individual health insurance. In most other states, however, most individual health insurance is “medically underwritten,� which means applicants can be turned down or charged more if they are not in good health. In another state, if Martha were very healthy, she could also apply for medically underwritten individual health insurance and might well find a policy for less money than the premium she was quoted in Massachusetts. Underwritten policies are age-rated, however. So Martha could still expect to pay 3 to 4 times more for a policy than a 20-year old would be charged. By age 60, age-rated coverage could very likely cost more than her COBRA coverage, too, depending on what the plans cover.

Extending COBRA: A few states, such as California or Illinois, allow you to receive continuation coverage until you are eligible for Medicare if you are leaving a fully insured group health plan, you are a certain age (for example, at least 55 or 60), and you meet other criteria. A fully insured group health plan is one that purchases coverage from a licensed health insurer instead of one that pays claims out of the companies general assets on a self-funded basis. This COBRA-extension option is not available in most other states or under federal law, however, and will not be available to Martha in Massachusetts. When her COBRA expires, she will need to purchase individual health insurance which will be more expensive than COBRA coverage and which may not, depending on the plan, provide coverage for the same benefits or the same doctors.

Lessons for Policy Makers

For people over age 55 who lose group health coverage, staying insured can be a challenge. Our health problems tend to increase as we age, making access to health insurance all the more important. However, this also can make it harder to obtain individual health insurance – a market where insurers can turn applicants down or charge more based on health status. In most states, individual health insurance is age rated, which means coverage is more expensive (3 to 4 times more, in fact) for people in their 50s and 60s, even if they are healthy. COBRA offers people the chance to continue coverage under a group health plan they might otherwise lose, preventing or delaying the need to buy individual health insurance.

A few states have acted to extend COBRA-like continuation coverage so that it lasts until the age of Medicare eligibility. This kind of extension can be particularly important to older women: according to the Census, in one-third of married couples the husband is more than 3 years older than the wife. For these younger wives, the 36-month COBRA continuation coverage will not provide a sufficient bridge to Medicare eligibility at age 65.
As state and federal lawmakers contemplate options for improving access to coverage for the uninsured, they might consider ways to create a bridge to Medicare for people in Martha’s situation.

This issue brief was prepared by Stephanie Lewis, JD

A couple in Michigan, John and Rhonda, are the subject of this issue. Recently, they learned that their health insurance premium, which had been $526 per month, would increase to $1,026 per month at renewal. John and Rhonda have held this policy for three years and never made a claim until recently (Rhonda had minor surgery on her knee and John had to go to the doctor when he had a reaction after eating a bad clam). Last year, John also celebrated his 60th birthday. John and Rhonda can’t afford to pay more than $12,000 for health insurance, and so are about to join the ranks of the uninsured.

The issue brief discusses rights that John and Rhonda have in Michigan, as well as protections that they would have if they lived in other states. It also reviews the limitations of a federal law that requires all health insurance to be “guaranteed renewable,” but does not limit renewal premium increases.

Also at our web site this month, you will find a special consumer alert for people who lost coverage under a failed health plan operated by an unlicensed insurer, Employers Mutual, LLC. More than 22,000 people lost coverage under this health plan in February and were left with millions of dollars worth of unpaid medical bills. All of them are now scrambling to find new coverage, and many have rights under federal and state law that will help, but only if they act quickly.

FACTS: Rhonda and John live in Michigan and have a small business with no other employees. Rhonda and John were paying $526 per month for health insurance in the individual market. They’ve been covered under this policy for 3 years. Recently, Rhonda and John received their renewal notice, and were shocked to find their monthly premium would almost double to $1,026.

Both Rhonda and John are healthy and have not had any claims until last year. In his own words, “Last year we paid $7,000 in premiums and our insurer paid $2,200 in claims for us.� Their policy paid for a knee operation for Rhonda and a doctor’s visit for John, who had a reaction to a bad shell he ate. Rhonda and John cannot afford to pay over $1,000/month for health insurance. Unless they can find more affordable coverage, they will have to join the ranks of the uninsured.

WHAT PROTECTIONS EXIST, AND WILL THEY HELP IN THIS CASE?

Guaranteed renewability: A federal law known as the Health Insurance Portability and Accountability Act of 1996 (HIPAA) requires guaranteed renewability of all health insurance policies. So Rhonda and John’s insurers are prohibited from canceling coverage just because they have made claims. However, HIPAA does not limit renewal rates. The right to renew coverage at a 95% price increase does not seem a very meaningful protection to Rhonda and John.

Renewal rating limits: It is not clear exactly why Rhonda and John’s premium has increased so dramatically in one year. Three reasons are possible. First, Rhonda and John made claims this year. While many insurance policy contracts promise to spread the cost of claims experience evenly across all policyholders, some insurers (including, apparently, Rhonda’s and John’s) do assign premium increases to individuals who have made claims. Some insurers also use durational rating, increasing premiums for policyholders who have held their coverage for several years. Consumers in durational-rated coverage may be offered the option of reapplying for new coverage at cheaper rates, but they will be accepted only if they are healthy. Finally, most insurers use age rating, raising premiums as people get older. Rhonda is 52 and John just turned 60.

Just as HIPAA is silent on premium increases, a number of states, including Michigan, do not prohibit insurers in the individual market from increasing rates based on claims, duration of coverage, and age of covered individuals. In other states, however, insurers would be prohibited from increasing Rhonda and John’s premium like this. New York, for example, requires community rating of health insurance premiums. No policyholder can be charged more than any other based on health status, health history, or other risk factors. Other states require modified community rating with adjustments permitted for age, but not health status. Yet other states impose rating bands that limit how much premiums can vary based on health status, age, and other factors.

Shopping around: Rhonda and John would like the option of shopping around for less expensive coverage. However, their ability to do so in Michigan is limited. Most insurers in the individual market require applicants to pass medical underwriting, a process insurers use to assess the health and risk status of applicants. Because they have made recent health claims, Rhonda and John are more likely to be turned down by other insurers. Michigan does require one insurer, Blue Cross and Blue Shield, to guarantee issue coverage to all residents at community rates. That means Blue Cross can’t turn Rhonda and John down or charge them more because of their health problems. However, since this is the only company in the state subject to these requirements, sicker customers are more likely to gravitate there, and so premiums will be higher than for other policies that can turn sick people down. Rhonda and John report they have checked into Blue Cross coverage and can’t afford this, either.

In some other states, all insurers are required to guarantee issue and community rate health insurance. In these states, Rhonda and John would probably have multiple coverage options, although the community rated premiums still might be higher than what they can afford.

Protections for the self-employed: Although they both work for their own company, in Michigan, Rhonda and John are not counted as 2 separate employees. As a result, they are not eligible to buy small group coverage. The federal law, HIPAA, also considers a husband and wife team working together, without other employees, to be an individual family, not a small employer group. However, some other states, such as South Carolina, would count Rhonda and John as two employees, and therefore a group of two. In such states, they would be eligible to buy health insurance in the small group market. Nationwide, all small group policies must be offered on a guaranteed issue basis, so small employers cannot be turned down because someone in the group is sick, old, or high risk. (Unfortunately, Michigan is the only state in the U.S. that does not require guaranteed issue of all products for small employers. Even if Rhonda and John hired another employee to become a small group, they would not be guaranteed access to small group coverage from any insurer in Michigan other than Blue Cross.)

In 13 states, self-employed groups of one can buy coverage in the small group insurance market. In these states, therefore, even though they have no other employees, Rhonda and John would have guaranteed issue protections as a small group. Some states, such as Colorado, offer this protection year-round. Others, such as Maryland, allow the self-employed to buy a small group policy only during semi-annual open seasons. In both states, the rate for such policy would be an “adjusted community rate,� meaning Rhonda and John might pay somewhat more or less than other policyholders based on their age and where they live, but not because of their health.

LESSONS FOR POLICYMAKERS

Guaranteed renewability is an important protection for consumers. It prohibits insurers from canceling coverage when someone gets sick. However, unless guaranteed renewability is coupled with other protections – rating limits and guaranteed issue – it may be of limited value to consumers. For Rhonda and John, it means being stranded in a policy they can no longer afford.

Federal lawmakers could consider strengthening the protections they established in HIPAA, adding some limits on renewal premium increases to the guaranteed renewability of coverage the law already provides.

In fact, the National Association of Insurance Commissioners, an organization of state officials who regulate insurance, developed several model laws for small group policies and individual health insurance policies to address these practices. The Small Employer Health Insurance Availability Model Act requires insurance companies to use an adjusted community rate. There is a 200% limit on varying premiums based on ones age, meaning that a 64 year old individual would pay not more than twice as much as a 20 year old buying the same policy. If Rhonda and John lived in one of the states that have adopted the NAIC Model law, their insurance company would be prohibited from increasing their premiums due to medical claims or the amount of time they have been covered. Also, adjustment in premium for age would be limited. The NAIC Individual Health Insurance Portability Model also limits premiums and individuals may not be targeted for premium increases solely based on the amount of time they had been covered by the same policy or their medical claims.

Also at the state level, many states have adopted other protections – guaranteed issue requirements and expansions of the definition of who qualifies as a small group – that could expand coverage options for Rhonda and John. These actions provide models for other states to consider as they seek ways to protect the insurability of working Americans like Rhonda and John.

DISCUSSION OF OPTIONS

Rhonda and John’s experience would be completely different if they lived in another state. So if Rhonda and John lived in Maryland, their insurance company would be prohibited from increasing their premiums based on a $2200 claim and the three years they were covered by the policy. Maryland is not the only state where claims experience and durational rating is prohibited.

This issue brief was prepared by Mila Kofman, JD